Wage growth slows as number of people employed falls
UK Wage Growth Slows as Unemployment Hits 5.1%
The UK’s labour market showed signs of cooling in the final quarter of the year, with private sector wage growth slowing to its lowest rate in five years. According to the Office for National Statistics (ONS), the unemployment rate held steady at 5.1% between September and November—the highest level seen since the early stages of the pandemic in 2021.
The Wage Growth Divide
A sharp contrast has emerged between the public and private sectors. While overall average earnings (excluding bonuses) rose by 4.2%, the breakdown reveals two very different stories:
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Private Sector: Pay growth slowed to 3.6%, the lowest in half a decade.
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Public Sector: Wages rose by 7.9%. The ONS noted this was likely due to the timing of pay awards being distributed earlier than in the previous year, rather than a sustained trend of higher increases.
Sanjay Raja, Chief UK Economist at Deutsche Bank, described the slowing wage growth as "very encouraging" for the Bank of England's efforts to control inflation. "It helps the Bank feel more confident that inflation is on a sustainable path back to the 2% target," he told the BBC.
Interest Rates and Inflation
The Bank of England has been active in managing the economy, having cut interest rates six times since August 2024. Most recently, in December, borrowing costs were reduced from 4% to 3.75%.
| Indicator | Status (Sept–Nov) |
| Unemployment Rate | 5.1% |
| Inflation (CPI) | 3.2% (down from 3.4%) |
| Current Interest Rate | 3.75% |
| Payroll Change | -135,000 |
Despite the festive season—usually a period of high recruitment—company payrolls fell by 135,000. This decline was concentrated in the retail and hospitality sectors, reflecting what ONS Director Liz McKeown described as "ongoing poor recruitment activity."
Impact of the Autumn Budget
Economists are watching closely to see how recent policy changes impact the market. Following Chancellor Rachel Reeves' November Budget, businesses are adjusting to:
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National Insurance: Employer contributions rose from 13.8% to 15%.
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Tax Thresholds: The threshold at which businesses start paying NI on an employee's salary was lowered from £9,100 to £5,000.
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Minimum Wage: Significant increases are already in effect, with further rises scheduled for April.
Yael Selfin, Chief Economist at KPMG UK, warned that these higher employment costs might further dampen labour demand, potentially pushing the unemployment rate higher in the coming months.
'WorkWell': Bridging the Gap
To combat economic inactivity, the government is expanding the WorkWell programme. The scheme provides support—including physiotherapy and workplace adjustments—for disabled people and those with long-term health conditions.
Pat McFadden, the Chancellor of the Duchy of Lancaster, stated that the pilot scheme has already helped 25,000 people return to the workforce. One participant, Gabriel (23), who has a first-class degree in performing arts and lives with cerebral palsy, credited the scheme for his recent success.
"It's given me confidence in discussing the work environment and how to conduct yourself," Gabriel said. He is now employed one day a week at Haringey Shed, a professional arts company.
